Project Summary Schizophrenia is a leading cause of disability for Veterans. The Clinical Antipsychotic Trials of Intervention Effectiveness (CATIE) study of the effects of currently used neuroleptics drugs highlights the sobering fact that fewer than 50% of patients are successfully treated with any of the commonly used neuroleptics. This lack of efficacy of dopamine D2 receptor-blocking drugs has led to much recent interest in developing therapeutics for schizophrenia that extend beyond dopaminergic mechanisms. The NIMH MATRICS program was established to find new therapeutic targets for schizophrenia. At the NIMH-sponsored MATRICS consensus meeting, 17-nicotinic acetylcholine receptor agonism was selected as the leading candidate for new drug investigation, based on the findings of our Denver VA Schizophrenia Center. At the 2009 American College of Neuropsychopharmacology (ACNP) annual meeting, preliminary results of clinical trials evaluating several novel therapeutic candidates were presented. These trials included agents that acted on GABAergic, glutamatergic and cholinergic systems, and used cognitive function as outcome measures. Disappointingly, modest or in most cases completely negative findings were reported. Although the 17 nicotinic cholinergic agonist DMXB-A is one of the few therapeutic candidates with positive findings, it is possible that the use of cognitive variables as outcome measures does not provide adequate sensitivity for early therapeutic development. What is needed are measures more proximal to the theoretical neurobiological effects of novel compounds. During the current Merit Review award period, we have made substantial progress developing functional magnetic resonance imaging (fMRI) measures of neuronal response to DMXB-A. fMRI non-invasively detects changes in the brain hemodynamic response that reflect neuronal activity. As such, using fMRI to measure brain responses relevant to both disease pathology and neurobiological effects of potential therapeutic compounds may improve the drug development pathway. This Renewal Application proposes the use of an fMRI measure of hippocampal response during eye movements and a measure of the more general resting state response, or default network, to explore key therapeutic variables in the potential treatment of schizophrenia with a nicotinic agonist. Goals of the proposal are to determine if drug effects are observed in smoking patients, if variations in the 17 nicotinic receptor gene affect drug response, and to determine if DMXB-A effects can be optimized by accounting for variations in the 17 nicotinic receptor gene.